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Power sector has high hopes from new government

The listed power sector, on the back of rigorous power sector reforms expected to be introduced by the incoming government, has rallied significantly.

“This impetus stems from ease in cash recoveries, one-time net-receivable adjustment and higher dividend payouts,” Zoya Ahmed at BMA Capital, said. “Apart from tariff increase, which would benefit cash generation, the government will have to focus on revamping the distribution and transmission networks to reduce unbilled units and losses by distribution companies. Thus, this surfaces a trigger for all the generation and distribution companies.”

Analysts have highlighted Karachi Electric Supply Company (KESC) as one of the beneficiaries from the above mentioned factors as the company is both a generation and a distribution unit.

The incoming government plans to offset the entire circular debt by selling Rs500 billion in three-month, six-month, and 12-month treasury bills to pay off a chain of debt choking the country’s power sector and economy.

Though details are yet to emerge, experts believe this would be done through issuance of notes to banks for clearing debts taken by these companies.

Furthermore, the new government intends to do away with the mammoth power-subsidies, tackle electricity theft and appoint professional management to run the power distribution companies.

According to analysts, if the government is able to put its 100-day plan into action then it would yield positivity for the entire energy chain, including KESC.

Through a one-time adjustment of the entire overdue amount, the KESC would be able to offset its payables. Resultantly, short-term borrowing would come down significantly, along with the finance cost opening up the choked-up banking lines.